14-7. Tucker Lighting Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Tucker Lighting's policy is to maintain an ending inventory balance equal to 10 percent of the following month's cost of goods sold. April's budgeted cost of goods sold is $85,000.
January February March
Budgeted cost of goods sold $70,000 $74,000 $80,000
Plus: Desired ending inventory $7,400 ? ?
Inventory needed $77,400 ? ?
Less: Beginning inventory $18, 000 ? ?
Required purchases (on account) $59,400 ? ?
a. Complete the inventory purchases budget by filling in the missing amounts
b. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement.
c. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter
I have computed the required amounts in Excel so you can see the formulas and have a template for other problems like this. Notice that the ending balance in one month = beginning balance of the next month.